On May 13, 2025, a New York court (Prager Metis CPAs LLC v. Koenig, Index No. 652000/2023) held that the non-compete/client non-solicitation clauses (often referred to as ‘restrictive covenants’) in a CPA firm’s employment contract with its CPA employee were too broad (thus, unreasonable) and, therefore, granted summary judgment (without trial) in favor of the CPA employee.
This case demonstrates that CPA firms should re-evaluate their non-competition (and non-solicitation clauses) in their contracts with CPA employees. For additional context regarding this case, keep reading.
The standard for determining whether restrictive covenant clauses in CPA firms’ employment contracts with its CPA employees are enforceable is based on the seminal court case in New York, BDO Seidman v Hirshberg, 93 NY2d 382, 388-389 (1999), which held that New York courts will enforce a restrictive covenant in an employment contract if is it reasonable, meaning “‘only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.’”
Applying the facts of this case to the legal standard for enforcing a non-compete/non-solicitation of clients in the context of CPA firms and CPA employees, this New York trial court found that the restrictive covenants in the employment contract are “overbroad on [their] face” because:
(1) the restrictive covenants “prohibit [the CPA employee] from working with any of [the CPA firms’ clients], even those [that the CPA employee] never met, did not know about and for whom [the CPA employee] had done no work’ . . . nor does it carve out an exception for those [CPA firm] clients for whom [the CPA employee] performed no work . . .”;
(2) the restrictive covenants are “geographically overbroad [because the CPA firm] operates internationally, and [the restrictive covenants] contain no geographical restriction”; and
(3) the restrictive covenants contain “a prohibition against the solicitation of prospective clients,” which “is impermissible, as there is no protectable client relationship.”
CPA firms should re-examine the scope and breadth of their restrictive covenants.